Financial Daily from THE HINDU group of publications
Tuesday, Aug 20, 2002
Industry & Economy
Agri-Biz & Commodities - Tea
Tea cos cheer `welcome aberration'
MUMBAI, Aug. 19
THE erratic monsoon, which has impacted the fortunes of many industries, may benefit the Indian tea industry, which is facing oversupply and sluggish prices.
Tata Tea Ltd, the leading tea producer, has acknowledged that the ``aggravated monsoon pattern'', while impacting overall tea production, is a "welcome aberration''.
"This aberration could correct the oversupply of tea in the domestic market and may well lead to price stability,'' Tata Tea said in its 2001-2002 annual report.
India's tea production in the period January - June 2002 was 2,84,621 tonne (284.6 million kg), a five per cent decline from the year-ago period's output of 2,98,197 tonne (298.19 million kg).
In June 2002, tea production rose by three per cent to 97,014 tonne (93,941 tonne).
However, tea exports during the January-April 2002 period fell by 14 per cent.
The tea industry has been faced with sluggish prices amidst a fall in offtake and lower exports. During the January-June 2002 period, average prices were lower by 20 per cent at Rs 50.74 per kg against Rs 63.2 per kg in the year-ago period.
In 2001, tea auction prices at Guwahati ranged from a high of Rs 90 per kg to a low of Rs 56 per kg, according to the Government's Economic Survey.
In South India, average auction prices were Rs 46 per kg (Rs 44 per kg).
However, Tata Tea, in its annual report, maintained that the share of packet tea in the organised sector continued to deteriorate through the first quarter of 2002-2003. Signs of stability were now evident, the company said.
Tata Tea had reported a fall in revenue at Rs 185.24 crore (Rs 192.34 crore) in the first quarter of 2002-2003 due to a continuing slowdown in the organised retail market for branded tea and lower tea prices in auctions.
The company had said that tea prices at auctions had fallen by around 21 per cent since January this year.
Despite the decline in revenue, Tata Tea said it had been able to outperform the industry which reported a de-growth of around eight per cent, primarily on account of a fall in prices.
Hindustan Lever Ltd (HLL), in its second quarter (April-June 2002), reported a seven per cent fall in its revenues from its beverages segment at Rs 296.97 crore (Rs 318.59 crore).
In 2001, HLL's tea sales fell by 11.7 per cent. Tea and coffee exports fell by two per cent in 2001 because its single largest customer, Russia, started manufacturing on shore. The full impact of this would be felt in 2002, the company said.
However, the possible improvement in prices on account of a decline in production, may not resolve the tea industry's woes, analysts said.
"Although, tea prices may edge up, issues such as labour cost and other overheads and the overall decline in rural incomes will continue to assail the industry,'' said an analyst.
According to a study done by Rabobank International, Indian tea companies should rethink marketing strategies, moving away from commoditisation of tea. Besides, tea producers need to look at reducing cost of production in a bid to become competitive.
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